No Penalty on Refund of Advance from Customers in Cash under a Bonafide Belief: ITAT [Read Order]

The Cuttack bench of the Income Tax Appellate Tribunal (ITAT) has held that penalty under Section 273B of the Income Tax Act, 1961 cannot be levied if the assessee received refund of advance from customers under a bonafide belief that it does not violate Section 269T of the Income Tax Act.

In the instant case, the Assessing Officer, while completing the assessment, noted that the assessee has violated the provisions of section 269T by refunding the advance received from the customers in cash of Rs.21,49,943/-.

Before the Tribunal, the assessee contended that section 269T of the Act speaks about the repayment of loan or deposit in cash and not of advance received from customers. Therefore, the case of the assessee is not covered under section 269T of the Act and hence, the assessee is liable for penalty under section 271E of the Act.

The Tribunal relied on the CBDT circular wherein it was clarified that the prohibition contained in section 269SS is confined to loans and deposits only and does not extend to purchase/sale transactions.

Further, the bench also noticed the Gujarat High Court decision in CIT vs. Madhav Enterprise Pd Ltd and held that “keeping in view the provisions of section 273B of the Act, we find that the belief of the assessee that return of advance from customers is not prohibited by section 269T was a bonafide belief. Therefore, the levy of penalty u/s.271E of the Act of Rs.21,49,943/- cannot be sustained. Hence, we delete the same an allow the appeal of the assessee.”